Commentary on Economics, Information and Human Action

Ralph Nader on gasoline prices

If you’re looking for another point of view on gasoline prices, Ralph Nader has an article in Counterpunch, “The Gas Gougers.” In the article Nader blames speculators, a lazy media, and a business-friendly government for the recent 50-cent run up in gasoline prices.

There was a time when even a few cents increase in the price of gasoline or natural gas would provoke Congressional investigations, actions by state Attorneys General, and condemnations of the producer countries, the OPEC cartel and Big Oil from presidents and the heads of antitrust divisions of the Justice Department or the Federal Trade Commission. That is, until smooth, smiling Ronald Reagan came to Washington, D.C. with his mantra that “government is not the solution; government is the problem.”

Curiously, “Reagan came to Washington” back in January of 1981, so I’m having trouble understanding how that moment connects to a gasoline price increase in January 2013, some 32-years later.

Nader might say his point is that now the industry can raise prices and not worry about government interference. But if the industry could freely raise prices without government interference, why did they wait 32 years to claim this particular 50-cent per gallon prize? Why didn’t the oil and gas industry raise their prices this much a year ago, or two years ago, or thirty?

Each price surge in recent decades seems to have different principal causes. This time it seems to have been precipitated by surging prices of crude – easily manipulated – and in the U.S. the permanent or temporary shutdown for repairs, of too many refineries.

Believe it or not, the U.S. is now a net refined petroleum importer because of the continuing refusal by the industry to rebuild or expand refinery capacity on the very sites where many refineries have been shut down, often in favor of offshore, cheaper installations.

Whenever supply and demand for refined oil products is tight, all it takes is for one or two refineries to suspend operations, other than for repairs, and the prices surge all over the country.

And, believe it or not Mr. Nader, the U.S. is now a net refined petroleum products exporter–not a net importer–and has been since mid-2011. Somehow, despite the continuing refusal to rebuild or expand refinery capacity, we have petroleum products in such abundance that we can ship them overseas. I’m sure once Mr. Nader figures out his facts are exactly backwards, he will immediately revise his claim and give the oil and gas industry credit for maintaining surplus refining capacity.

And it turns out that one or two refineries (in California) can suspend production and have essentially zero effect on prices anywhere in the country (but in California, as price data from last year reveals). Similarly, disruptions of refineries in the Northeast don’t seem to spread consequences too broadly across the country.

Nader thinks political grandstanding and government participation in oil markets and refinery operations is called for: Obama should use his bully-pulpit to put the heat on Congress; Obama should release oil from the Strategic Petroleum Reserve to push prices down; the Defense Department should build it own refinery capability and sell excess products into the market to suppress prices.

Nader seems to pine for the energy policies of the 1970s–before Reagan came along–but maybe he should review that decade of periodic energy crises, government oil and gas price controls, import tariffs and oil allocation schemes, calls for energy independence, and repeated Presidential addresses to the nation about the seriousness of increasing energy scarcity. I don’t think it worked as well as he seems to think it did.

Gregg, mostly gasoline prices are just catching up with higher crude oil prices. Crude oil prices started up in December; gasoline prices followed with a bit of lag. The gasoline price level is just about what we should expect given typical relationships between the world price of oil and the U.S. average price of gasoline. See a little more description in an earlier post: “Current Gasoline Prices.”

The follow up question is obviously, “Why did crude oil prices go up in December?” My sense is that the Saudi decision to reduce their exports a little helped push prices higher. While U.S. consumption has been declining due to high prices and moderated economic growth here, world demand remains pretty strong in part because China is still growing economically.

Speculators (traders and solvent swaphouses! Who knew!) Lazy media (s.b. slovenly; do Counterpunch co-edit their suite of Nader?) and business-friendly government (not least drumming out refineries to the dual-use private sector, but that term…well, I cannot dislike what he says instead as an energy vendor of any kind) still sound reasonably culpable. Not sure swelling the Administration with pride is the way to get them to spit-take their yerba mate and change something… Ralph should be complaining we need to have embedded costs of a free press in Arab and African Nations accepted as the reason, but…what is he, FAXing newsrooms?

On eia.gov link…their citations, rather; here I’m being thrilled and want to know if .mil expenditures on fuel are rolled in, and they’re citations are a touch deadpan: Us. We said so. Not even a ‘Traders ate all 380 compliance inflection points natch. Thanks for helping us blow those up, traders. See filings…’

As for the ’70s, there definitely was no attitude that 1-4% regulatory capture was the moral hazard an options maker would rightly blanch at; unforgivable error that favored some traders (those watching trades at the service counter) over others. So that’s dead on what Nader rightly finds insensible about er, reverse-capturing profits for horizontal innovation; and the urgence to treat mineral fuel power like it is going away is OK. The nation is well-prepared should one in ten years offer lines for fuel and feedstock: Слова с друзьями.